Final Results - Year Ended 31 March 2000, Part 2

FirstGroup PLC 16 May 2000 PART 2 FIRSTGROUP PLC PRELIMINARY RESULTS FOR THE YEAR TO 31 MARCH 2000 - Part 2 Financial Review Overall Group turnover in the year increased by 22% to £1795.1m. Group operating profit, before ESOP, goodwill and one-off costs increased by 32% to £190.9m. These results include a 6 month contribution from the North America Division accounting for 14% of turnover and 18% of operating profit. Divisional Results Year to 31 March 2000 Year to 31 March 1999 Operating Operating Operating Operating Turnover profit* margin* Turnover profit* margin* £m % £m £m % £m UK Bus 744.3 111.4 15.0 686.1 102.1 14.9 Division North 246.4 34.5 14.0 - - America Division Rail 767.4 46.2 6.0 753.3 41.6 5.5 Division Bristol 31.3 9.9 31.6 28.6 9.7 33.9 Internationa l Airport Other** 5.7 (11.1) 2.4 (8.6) Total Group 1,795.1 190.9 10.6 1,470.4 144.8 9.8 * Before ESOP, goodwill and restructuring and other exceptional costs ** Tram operations, central management, Group information technology, and other items In the UK Bus Division it was pleasing that margins were maintained through strict operating controls in spite of the pressure on costs, particularly drivers' wages. The Group's policy of hedging diesel prices provided significant protection from the effects of oil price increases during the year. Our North America division performed very well and met our expectations. Reported margins were enhanced by the strong second half seasonality of the school bus business. The Rail Division continued to increase profits despite grant reductions of £21.2m. Revenue growth at Bristol International Airport resulted in a further increase in profits despite the loss of duty free and higher marketing spend promoting the new terminal. The increase in other costs reflects inter alia year 2000 costs and the reduction in the market value of Employee Benefit Trusts' shareholding. Joint Ventures New World First Bus (NWFB), the 26% joint venture in Hong Kong with New World Development Company, contributed £0.8m in the year. Since the year end the Group has announced the sale of its interest for £38.7m, resulting in a profit before tax of approximately £14m after the write back of goodwill amounting to £1.6m. Tramtrack Croydon, in which the Group has a 20% interest, completed the construction of the track shortly after the year-end. The Group will operate the trams on behalf of the joint venture company through a wholly owned subsidiary, Tram Operations Limited. Interest Net interest payable for the Group was £44.0m (1999: £28.3m). This was covered 4.1 times by profit before interest and goodwill amortisation. The significant increase in the interest charge over the previous year reflects the virtual doubling of the Group net debt following the Ryder acquisition in September 1999. Taxation The high level of capital expenditure in the UK in the year and the deductibility in the USA of goodwill amortisation reduced the effective tax rate to 20%. The charge for the year of £24.3m benefited from prior year credits of £3.2m. Acquisitions On 13 September 1999 the Group completed the acquisition of Ryder Public Transportation Services Inc. for US$934m. This was funded partly by a £238m (net £232m) rights issue and the remainder by debt. Goodwill amounted to £461.8m. On 14 September 1999 the Group also acquired Bruce Transportation Group Inc., a school bus operator in New England for US$12.6m, paid in cash. Goodwill amounted to £6.8m. In the UK, on 8 April 1999 the Group acquired GAG Limited, a bus and coach operator in the South West of England. The total consideration of £10.6m was satisfied by £2.7m in cash, £5.2m in loan notes and 657,734 ordinary shares in FirstGroup. Goodwill amounted to £6.8m. The goodwill arising on all of these acquisitions is being amortised over 20 years. Cash flow and investment in the business Cash generation (operating profit, before ESOP, goodwill and one-off costs, plus depreciation) rose from £191.8m to £260.3m. Capital expenditure was £136.0m. This included £68.3m for 634 new buses in the UK. During the first half of the new year expenditure on new vehicles in the UK is expected to amount to £45m, including £17m for vehicles outstanding from 1999/2000. Thereafter the investment in new vehicles will reduce significantly with only £10m committed for the second half of 2000/2001. £7.1m was spent on completing the bus depots in Bath, South Bristol and Plymouth for which cash proceeds of £14.8m were received from the sale of the previous sites. In the USA, capital expenditure was incurred for 380 vehicles amounting to £13.0m. Expenditure on the new terminal and related improvements at Bristol International Airport was £22.2m in the year taking the total expenditure to date to £35.7m. The terminal was completed on time and within budget by the beginning of March 2000. Future capital expenditure at the Airport will be considerably reduced although approval has been given to build a new air traffic control tower for up to £3.5m. During the year a deposit of £8.0m was paid towards the purchase of 30 additional diesel trains for First Great Western, increasing the total on order to 70. It is intended to finance all the First Great Western trains in the conventional manner through operating leases with the rolling stock companies on similar financing arrangements to those already put into place in respect of the 70 vehicles ordered for First North Western. The deposits of £30.4m for both sets of trains will be recovered from the rolling stock companies when the vehicles are delivered into service during the new financial year. Balance sheet Net assets increased from £46.0m to £336.2m, which reflects the £231.9m rights issue and retained profits of £56.9m. If goodwill written off in past years were to be included the net assets would increase to approximately £800m. Net debt at 31 March 2000 amounted to £780m, some £20m lower than the target we announced at the time of the Ryder acquisition and £70m lower than the pro forma net debt at the time of completion of that acquisition. Funding and risk management The Group only borrows to finance investment and provide working capital. It does not enter into speculative financial transactions and uses financial instruments for risk management purposes only. As the Group is a net borrower, it minimises cash and bank deposits, although it is required to keep cash from rail season tickets on deposit and can only withdraw cash and bank deposits from the rail companies to the extent of retained profits. With the exception of the rail season ticket bonded cash, which cannot be split between banks, the Group limits deposits with any one bank to a maximum of £30m, depending upon the individual bank's credit rating. The Group reduces exposure to interest rate risk by using interest rate caps and swaps and fixed rate debt. At 31 March 2000, net debt amounted to £779.8m, which is analysed below. At the year end, over 70% of the net debt was at fixed interest rates. Analysis of net debt Fixed Variable Total £m £m £m Cash - 25.2 25.2 Rail ring fenced cash - 33.8 33.8 Rail season ticket bonded cash - 37.6 37.6 Sterling bank loans and overdrafts - (433.7) (433.7) US dollar bank loans - (156.7) (156.7) Hong Kong dollar bank loans - (21.2) (21.2) HP and finance leases (155.5) (56.8) (212.3) Loan notes (9.7) (42.8) (52.5) Interest rate caps and swaps (431.7) 431.7 - Total (596.9) (182.9) (779.8) The maturity profile of banking facilities is regularly reviewed. Well in advance of their expiry, the facilities are extended or replaced. At the year end, bank borrowing and guarantee facilities amounted to £884m, of which £599m had more than two years to maturity. This compares with utilisation of £689m. The Group hedges part of its exposure to the impact of exchange rate movements on translation of foreign currency net assets by holding a proportion of its net borrowings in foreign currencies. At the year end $250m of US dollar debt was hedged against US dollar net assets of $1,013m (including $727m goodwill). The whole investment in NWFB is matched by Hong Kong dollar bank borrowings. The Group manages exposure to fuel price movements by entering contracts with suppliers to fix the purchase price for future periods. The Group also enters into forward exchange contracts and currency swaps to hedge transactional foreign exchange rate risk. Shares in issue The total number of shares in issue increased by 88.3m to 433.5m, due mainly to the 1 for 4 rights issue. Of this total number of shares, 2.6 million were held between the Group's Employee Benefit Trust and Qualifying Employee Share Ownership Trust. For the purpose of the earnings per share calculation the average number of shares in issue for the year (excluding own shares held) was 396.8m. If the number of shares remained unchanged in 2000/01 the average number in issue would be 430.9m. The adjustment to comparative per share ratios which has been made to reflect the bonus element of the rights issue is a decrease of 3%. Accounting standards and policies The Group has adopted two new accounting standards in the year, which are FRS 15, Tangible Fixed Assets and FRS 16, Current Tax. The only significant impact of these on the Group is in the area of revaluation of fixed assets. FRS 15 requires that each class of tangible fixed assets is either revalued annually or not at all. The policy that has been adopted is not to revalue in future, although as permitted by the standard, properties that have been revalued in the past will retain the existing book values. Adoption of the standards has no other material impact on the Group. Consolidated profit and loss account For the year ended 31 March 2000 Notes 2000 1999 £m £m Turnover Continuing operations 1,531.8 1,470.4 Acquisitions 263.3 - Group turnover 2 1,795.1 1,470.4 Share of turnover of joint 22.7 9.9 ventures _______ _______ Total turnover 1,817.8 1,480.3 _______ _______ Operating profit Continuing operations 139.5 121.9 Acquisitions 21.6 - _______ _______ Group operating profit 2 161.1 121.9 _______ _______ Group operating profit before exceptional costs and employees' profit sharing 190.9 144.8 scheme Goodwill amortisation 2 (13.0) - Restructuring and other 2,4 (11.6) (17.9) exceptional costs Employees' profit sharing 2 (5.2) (5.0) scheme _______ _______ Group operating profit 2 161.1 121.9 _______ _______ Share of operating 0.4 (0.4) profits/(losses) of joint ventures _______ _______ Total operating profit 161.5 121.5 Profit on disposal of fixed 4.0 2.0 assets - continuing operations _______ _______ Profit on ordinary 2 165.5 123.5 activities before interest Net interest payable and 6 (44.0) (28.3) similar charges _______ _______ Profit on ordinary 121.5 95.2 activities before taxation Tax on profit on ordinary 7 (24.3) (22.4) activities _______ _______ Profit on ordinary 97.2 72.8 activities after taxation Equity minority interests (3.7) (3.4) _______ _______ Profit for the financial 93.5 69.4 year Equity dividends paid and 8 (36.6) (26.1) proposed _______ _______ Retained profit for the 20 56.9 43.3 financial year Adjusted basic earnings per 9 28.3p 22.7p share Adjusted cash earnings per 9 45.6p 35.8p share Basic earnings per share 9 23.6p 19.6p Diluted earnings per share 9 23.4p 19.4p Consolidated balance sheet At 31 March 2000 Notes 2000 1999 £m £m Assets employed: Fixed assets Intangible assets 10 533.8 74.8 Tangible assets 11 724.8 489.2 Investments - Joint ventures - Share of gross assets 80.7 60.4 - Share of gross liabilities (56.7) (37.5) _______ _______ 12 24.0 22.9 - Other 12 7.3 3.7 _______ _______ 12 31.3 26.6 _______ _______ 1,289.9 590.6 _______ _______ Current assets Stocks 13 21.9 18.2 Debtors 14 260.8 166.2 Investments 15 48.8 38.1 Cash at bank and in hand 16 47.8 43.5 _______ _______ 379.3 266.0 Creditors: amounts falling due within one year 17 (532.4) (434.5) _______ _______ Net current (liabilities)/assets Due within one year (177.8) (202.3) Amounts due after more than one year 14 24.7 33.8 _______ _______ Net current liabilities (153.1) (168.5) _______ _______ Total assets less current liabilities 1,136.8 422.1 Creditors: amounts falling due after more than one year 17 (750.9) (338.1) Provisions for liabilities and charges 18 (39.9) (30.4) _______ _______ 346.0 53.6 Financed by: Capital and reserves Called up share capital 21.7 17.3 Share premium account 20 233.6 - Revaluation reserve 20 3.7 3.3 Other reserves 20 2.8 0.1 Profit and loss account 20 74.4 25.3 _______ _______ Equity shareholders' funds 336.2 46.0 _______ _______ Equity minority interests 9.8 7.6 _______ _______ 346.0 53.6 Consolidated cash flow statement For the year ended 31 March 2000 Notes 2000 1999 £m £m Net cash inflow from operating activities 21(a) 193.6 150.2 Returns on investments and servicing of 21(b) (42.2) (28.4) finance Taxation Corporation tax paid (11.8) (15.6) Capital expenditure and financial investment 21(c) (73.1) (56.3) Acquisitions and disposals 21(d) (609.3) (87.0) Equity dividends paid (28.8) (23.9) ______ ______ Cash outflow before use of liquid resources and financing (571.6) (61.0) Management of liquid resources (Increase)/decrease in bank deposits (11.2) 37.5 Financing 21(e) 587.2 32.9 ______ ______ Increase in cash in year 4.4 9.4 Reconciliation of net cash flows to movements in net debt For the year ended 31 March 2000 Notes 2000 1999 £m £m Increase in cash in year 4.4 9.4 Cash inflow from increase in debt and hire purchase contract and finance lease financing (355.2) (32.8) Movement in current asset investments 10.7 (35.3) Debt issued on acquisition of subsidiary (5.2) - undertakings Debt and hire purchase contracts and finance leases acquired with subsidiary undertakings and (25.9) (24.4) businesses Inception of hire purchase contracts and (53.8) (63.8) finance leases Debt issuance fees paid 1.8 - Amortisation of debt issuance fees (0.2) (0.3) Foreign exchange difference 0.2 (0.2) _______ _______ Movement in net debt in year (423.2) (147.4) Net debt at beginning of year 22 (356.6) (209.2) _______ _______ Net debt at end of year 22 (779.8) (356.6) Consolidated statement of total recognised gains and losses For the year ended 31 March 2000 2000 1999 £m £m Profit for the year attributable to shareholders 93.5 69.4 Foreign exchange differences - - Cancellation of shares (3.7) - Write down of own shares held by QUEST (3.7) - ______ ______ Total recognised gains and losses 86.1 69.4 Reconciliation of movements in shareholders' funds For the year ended 31 March 2000 2000 1999 £m £m Profit for the financial year 93.5 69.4 Dividends (36.6) (26.1) ______ ______ 56.9 43.3 Shares issued: - in respect of subsidiaries acquired 2.7 27.2 - in respect of 1 for 4 rights issue 231.9 - - to QUEST 6.0 - - in respect of exercise of savings related share options 0.1 - Other recognised losses relating to the year (7.4) - Foreign exchange differences - - ______ ______ Net addition to shareholders' funds 290.2 70.5 Shareholders' funds at beginning of year 46.0 (24.5) ______ ______ Shareholders' funds at end of year 336.2 46.0 1 Basis of preparation The financial information set out herein does not constitute statutory accounts but has been extracted from the accounts for the years ended 31 March 1999 and 2000. The accounts for the year ended 31 March 1999 have been delivered to the Registrar of Companies and the accounts for the year ended 31 March 2000 will be delivered to the Registrar of Companies in due course. The auditors have reported on both sets of accounts: their reports were unqualified and did not contain a statement under section 237 (2) or (3) of the Companies Act 1985. The accounts for the year ended 31 March 2000 have been prepared using the same accounting policies as were used in the preparation of the accounts for the year ended 31 March 1999 except for changes arising from the adoption of the following accounting standards: FRS 15 Tangible Fixed Assets FRS 16 Current Tax The principal change in accounting policy arising from these standards is regarding the revaluation of fixed assets. FRS 15 requires that each class of tangible fixed assets is either revalued annually or not at all. The policy that has been adopted is not to revalue in future although, as permitted by the standard, properties that have been revalued in the past will retain their existing book values. Copies of the statutory accounts for the year ended 31 March 2000 will be sent to all shareholders by early June and will be available thereafter to the public at the Corporate Headquarters of the Group at 32a Weymouth Street, London W1N 3FA. 2 Profit and loss account analysis and segmental information Continuing Acquisitions Total Total operations 2000 1999 £m £m £m £m Group 1,531.8 263.3 1,795.1 1,470.4 turnover _______ _______ _______ _______ Group operating costs - General (1,376.8) (227.4) (1,604.2) (1,325.6) - Goodwill (0.2) (12.8) (13.0) - amortisation - Restructuri ng and other exceptional (10.2) (1.4) (11.6) (17.9) costs (note 4) - (5.1) (0.1) (5.2) (5.0) Employees' profit sharing scheme _______ _______ _______ _______ Total (1,392.3) (241.7) (1,634.0) (1,348.5) Group operating costs (note 3) _______ _______ _______ _______ Group 139.5 21.6 161.1 121.9 operating profit Segmental information is as follows: Turnover Profit before Net assets interest /(liabilities) 2000 1999 2000 1999 2000 1999 £m £m £m £m £m £m UK 744.3 686.1 105.3 92.5 442.0 418.1 Bus UK 767.4 753.3 38.0 29.1 (20.5) (14.2) Rail North 246.4 - 20.8 - 235.8 - Ameri ca Airpo 31.3 28.6 9.9 9.2 8.5 7.1 rt Group 5.7 2.4 (8.5) (7.3) (329.6) (365.0) items 1,795.1 1,470.4 165.5 123.5 336.2 46.0 3 Operating costs Continuing Acquisitions Total Total operations 2000 1999 £m £m £m £m Materials 139.1 42.3 181.4 140.4 and consumables Staff 552.2 141.4 693.6 520.1 costs (note 5) External 646.2 30.4 676.6 641.0 charges Depreciatio n, amortisatio n and other amounts written off fixed assets 54.8 27.6 82.4 47.0 1,392.3 241.7 1,634.0 1,348.5 4 Restructuring and other exceptional costs 2000 1999 £m £m Redundancy 6.8 15.6 Buying out conditions of employment 0.1 0.3 Court fine in connection with Southall 1.5 - accident New train commissioning costs 0.8 - Other 2.4 2.0 11.6 17.9 5 Employees' and directors' remuneration The average number of persons employed by the Group (including directors) during the year was as follows: 2000 1999 Operational 38,996 29,171 Administration 2,122 1,485 41,118 30,656 The aggregate payroll costs of these persons were as follows: 2000 1999 £m £m Wages and salaries 630.3 466.9 Social security costs 45.0 35.8 Other pension costs 18.3 17.4 693.6 520.1 6 Net interest payable and similar charges 2000 1999 £m £m Bank loans and overdrafts 32.3 13.9 Other loans 3.5 4.8 Finance charges payable in respect of hire purchase contracts and finance leases 15.0 15.1 50.8 33.8 Income from short term deposits and other (5.9) (5.3) investments Interest capitalised (1.2) (0.4) Notional interest on pension provisions 0.3 0.2 44.0 28.3 The interest capitalised is in relation to the construction of the new terminal at Bristol International Airport. 7 Tax on profit on ordinary activities 2000 1999 £m £m Corporation tax Current year - UK at 30% (1999: 31%) 13.1 16.2 Current year - overseas 1.6 - Prior years - UK (2.3) (2.9) Transfer to deferred tax Current year - UK 12.2 7.1 Current year - overseas 0.6 - Prior years - UK (0.9) 2.0 Group 24.3 22.4 8 Equity dividends 2000 1999 £m £m Ordinary shares of 5p each - Interim paid (2.7p (1999: 2.4p restated) 11.6 8.6 per share) - Final proposed (5.8p (1999: 4.9p restated) 25.0 17.2 per share) - Adjustment to prior year final dividend in respect - 0.3 of new shares issued 36.6 26.1 9 Earnings per share Basic earnings per share is based on earnings of £93.5m (1999: £69.4m) and on the weighted average number of ordinary shares of 396.8m (1999: 353.3m) in issue. Diluted earnings per share is based on the same earnings and on the weighted average number of ordinary shares of 400.1m (1999: 357.6m). In both cases, the weighted average number of ordinary shares for 1999 has been restated to reflect the bonus element of the rights issue. A reconciliation of the number of shares used in the basic and diluted measures is set out below: 2000 1999 Number Number (m) (m) Weighted average number of shares used 396.8 353.3 in basic calculation SAYE share options 2.8 3.7 Executive share options 0.3 0.3 Long term incentive plan awards 0.2 0.3 400.1 357.6 MORE TO FOLLOW FRCIFFLFERIELII

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